Adam Sharp on the Future of the Cryptocurrency Markets

Transcript:

Samuel Taube: Joining us today is Adam Sharp, the co-founder of Early Investing and the First Stage Investor service. Today we’re talking about bitcoin and other cryptocurrencies.

Adam, thanks for joining us.

Adam Sharp: Thanks for having me, Sam.

ST: Bitcoin is down about 20% from its high at the beginning of the month. So my first question for you: What happened there?

AS: First and foremost, I think this was just a normal correction. There are catalysts that people are blaming, but really we’d just gone up from $1,000 at the beginning of this year to as high as $5,000 recently.

So it’s just natural and normal for a market to have a correction after a run like that. Historically, bitcoin corrects anywhere from 30% to 50%.

But the long-term trend is still strongly bullish. We’re up from $0.0033 in 2009 in the very early days to close to $4,000 today.

It’s a little bit nauseating if you’re a holder to sit through days and weeks like this. But I’ve been in bitcoin and other cryptocurrencies since 2013, and after a while you just get used to it, kind of. You realize that this is just extremely volatile - it’s something you don’t want to check every day.

It’s a roller coaster - an emotional roller coaster as well. If you just try to realize, “This is a speculative investment; I’m not going to look at it every day.” That’s kind of the mantra that I try to repeat to myself during corrections - which are, like I said, natural and necessary.

ST: Right. And you brought up volatility in other cryptocurrencies, and I wanted to bring that up as well.

It seems like Litecoin and Ethereum and some of the other altcoins also sold off during the same time period earlier this month. How much are their prices related to each other?

AS: Yeah, that’s a really interesting question. Because cryptocurrencies are kind of this asset on their own, they’re not really correlated with any other asset. But they do follow each other.

So if bitcoin catches a cold, the more speculative alternative coins catch the flu.

So yeah - Litecoin was as high as $90 recently. Now it’s back down to around $60. But Litecoin has moved up from around $5 a year ago to $60, and then to $90, and back down to $60. So if you hold for long enough, you’re still doing really well; it’s just an extremely volatile ride.

ST: I see. So I assume you see this sell-off as an opportunity to “buy the dip.” Do you think there could be a bigger correction ahead? Or do you think the worst is over at this point?

AS: Yeah, good question - and I kind of want to get back to your first question as well. I didn’t really get into too much about what’s causing this current sell-off.

There are a couple of things in the market right now. China is eyeing more regulation on the cryptocurrency space. Honestly, I don’t think it’s that big of a deal, but I think the market was kind of looking for an excuse to sell off.

And the “shaky hands” - the holders who aren’t totally sold on this thing yet - they had a gut reaction; the market sold off.

So we have some overregulation concerns in China - I think the country’s actually going to be rather reasonable about it - and then also JPMorgan’s CEO, Jamie Dimon, recently at an investment conference said that bitcoin is a fraud, that it’s not going to end well.

ST: Ah, that’s right.

AS: Yeah, this is funny coming from him.

If you aren’t familiar with cryptocurrencies, the whole idea of them is that they can disrupt the current monetary system and the current financial order. So obviously banks like JPMorgan have a lot to lose in this scenario.

Jamie Dimon is not only the CEO of JPMorgan but also a Class A director on the board at the New York Federal Reserve. That’s his regulating agency, and somehow he’s on the board there.

This is the epitome of the current financial status quo - the establishment kind of trying to push back against these new upstarts.

ST: Right, because they have a vested interest in keeping the monetary system the way it is.

AS: Exactly. The stakes are very large, and I think this is only going to get more heated from here. Gandhi said, famously, that “First they ignore you, then they laugh at you, then they fight you, and then you win.”

These are the stages of an uprising, and cryptocurrencies are kind of an uprising in the financial system.

Because there’s no governmental agency that controls these things... there’s no powerful cabal of banks that controls issuance. It’s code. It’s software that’s written to be more egalitarian than the current system and more fair.

I’m not saying it’s a perfectly fair or perfect system, but when you compare it with something like the dollar, where they can just print as many dollars as they want and there’s no cap on the amount of debt we can take on, et cetera...

Then you have these cryptocurrencies that are traded all over the world. They’re liquid; you can buy stuff with them on sites like Dell.com, tens of thousands of sites. You can change them for money all over the world.

So this is obviously a threat to the current monetary order.

ST: I see. And in the last few months, we’ve seen huge gains, obviously, but we’ve also seen a lot of volatility in crypto, particularly bitcoin.

With that in mind, what role should cryptocurrencies play in an average Joe’s retirement portfolio?

AS: Yeah, it’s a really interesting question because this is not something you would traditionally associate with retirement.

But in times like this, when we have really low interest rates and the government is essentially telling you to go out and speculate on stuff because it wants asset prices to rise - I think crypto should be in every investor’s portfolio.

Even if it’s only a couple hundred bucks or a couple thousand bucks, you need to have some exposure here, because if the bitcoiners do pull this off, you’re really going to be kicking yourself 30 years down the road if bitcoin is worth a million dollars.

But to get back to your question about whether this is a good “buy the dip” opportunity - I think it is.

I mean, it’s difficult to say exactly how the market will respond. There are a lot of factors at play here. We’ve got governments; we’ve got a lot of wealthy investors just discovering bitcoin for the first time, driving up prices.

ST: Right.

AS: There are just countless factors at play here. But in general, yeah, you want to buy when it’s scary.

When Wired magazine ran an article in 2014 saying bitcoin is dead, I kind of said to myself in my mind, “Gosh, this is probably a good buying opportunity.” I think bitcoin was around $200 at the time. I didn’t pull the trigger then, but I had earlier.

But yeah, that’s kind of when you want to buy - when these things look like they’re going to fall apart or the end is near, that’s generally a sign that you should probably be buying. It’s hard to do psychologically...

ST: Right, counterintuitive and whatnot.

AS: Yeah, it’s very counterintuitive. But there are millions of people who believe in the bitcoin story, and they happen to be some of the brightest minds in technology.

I kind of operate in the startup world and the cryptocurrency world, and there’s a lot of crossover.

ST: I’d imagine.

AS: Some of the smartest engineers from Google and all these tech companies - Apple, everybody that made money - they’re now starting cryptocurrency companies.

That’s not a coincidence; these people understand the math and the cryptography behind it, and they’re just absolutely fascinated by it.

And they’re going to keep building it, no matter what people say. Because No. 1, it’s philosophically important to them. This is kind of a libertarian dream - currency competition, a situation where the dollar loses its monopoly status. Or not just the dollar, but any governmental currency loses its monopoly.

We’re not there yet, but that’s the goal. So yeah, no matter what people say - Jamie Dimon calls it a fraud - I really view it as a good thing.

I mean, gosh, it kind of delivered us a nice buying opportunity, and it’s confirmation to me that this thing is a huge threat to them, and they’re scared of it.

It’s funny, because Jamie Dimon went on to admit that his daughter bought some bitcoin, and she’s up on it, and she now thinks she’s a genius, he says.

Yeah, a lot of these guys really hate it. One of my favorite things... JPMorgan’s ex-head of macroeconomic research now runs a bitcoin firm, and he said on Twitter... something extremely crude that I can’t repeat here, but he basically said, “Jamie, shut up about it, you know nothing.”

So, you know, this is a guy who used to work for Jamie, very smart guy.

ST: His old colleague, yeah.

AS: Yeah. And I thought it was really interesting that Jamie said, “If I discover that any JPMorgan employees were trading bitcoin, then I would fire them because it’s against our rules.”

ST: Oh wow.

AS: Yeah. The fight is on now a little bit, and I think that’s a little worrying, but it’s inevitable. And I think the sooner we get on with this... debate, if you will, the better.

I don’t see bitcoin slowing down significantly anymore. It just has this built-in viral growth mechanism, right?

If I buy it at $10 and I tell my friends about it at $100, they’re all like, “Well crap, you’ve already made 10 times your money!” So maybe a few of them buy. And then they do the same thing, and they tell their friends when they make money on it.

And the cycle just repeats over and over again. It’s a very difficult cycle to disrupt.

I don’t think JPMorgan was trying to knock the price down to buy bitcoin, but I think there is a lot of fear, uncertainty and doubt - FUD - being spread by people who are looking to create a buying opportunity.

Imagine that you’re a billionaire’s family office or that you run money for Bill Gates. These guys all have to be thinking that they need at least a little bit of exposure, right?

All these billionaires and really wealthy individuals have to be thinking to themselves, “Well if this bitcoin thing really catches on and becomes a mainstream part of the economy, I’m going to be poorer by comparison.”

So I think that’s what’s driven a lot of the price action this year. It’s family offices and other sophisticated investors that realize they need at least a little exposure to this.

Or else, in a future where bitcoin succeeds and takes over 1% or 2% of the world’s economy - that’s going to be hundreds of times higher than here. Everybody realizes that if that’s a possibility, you need exposure to it. You have to have it.

So that’s another reason why I think everybody should have at least a little exposure to it for their retirement.

ST: I see. Yeah, makes sense. And if investors agree with you, where can they go to learn more about crypto investing?

AS: They can check out our site. It’s earlyinvesting.com. We have a lot of articles and a focus on educational content for people who are new to cryptocurrency.

YouTube can also be a gold mine. There are a lot of people whom I follow on YouTube. And if you just go on there and type in “bitcoin mining,” if you want to learn the basics of that - or if you type in “bitcoin wallets” and you want to understand how to store these currencies - there’s just a wealth of information out there.

Most of it’s good. The one thing I would warn about is, when you see somebody recommending a coin, just do your own research. There are hundreds, if not thousands, of cryptocurrencies out there now. So there are a lot of great ones, and there are a lot of kind of sketchy ones.

So you need to do your own research, confirm what you read from other people. I tell our members that. I say, “Make sure you do your own research as well, and don’t believe everything you read on the internet.”

One good place to start if you’re interested in the smaller coins is called coinmarketcap.com. That’s a site that lists the price action on the top 200 cryptocurrencies. They have information linking to the site, and they show price history; they have really good charts.

So coinmarketcap.com is a really good place if you’re interested in the smaller currencies. Just really take into account what I said about people talking their own book and promoting coins they own.

So... do your own research. If you’re interested in it, it should come naturally and you’ll want to research these things.

You know, I’m not a computer coder; I’m somewhat technically savvy, but you don’t really need to understand the actual programming of it to really get the utility and security of it.

It takes time to research these things, but for me it’s been well worth it. And it’s really interesting because the more and more I talk with people about it these days, there’s just a skyrocketing level of interest.

ST: Seems like it, yeah.

Well, if you want to save yourself a little bit of research work, check out First Stage Investor; you’ll find a link at the bottom of this article.

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